UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number0-9965
QUESTA OIL & GAS CO.
(Exact name of registrant as specified in its charter)
COLORADO 84-0846588
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
7030 South Yale
Suite 700
Tulsa, Oklahoma 74136-5718
(Address of principal executive offices)
Registrant's telephone number, including area code: (918) 494-6055
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required o file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of August 1, 1999, the Company had 1,914,396 shares of Common. Stock issued
and outstanding.
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QUESTA OIL & GAS CO.
Contents
Page
Part I - Financial Information
Consolidated balance sheets at June 30, 1999
and December 31, 1998 . . . . . . . . . . . . . . 3
Consolidated statements of operations for the six
months ended June 30, 1999 and 1998 . . . . . . . 4
Consolidated statements of cash flow for
the six months ended June 30, 1999 and 1998 . . . 5
Consolidated notes to financial statements . . . . 6
Management's discussion and analysis of
financial condition and results of operations . . . 6
Part II - Other Information . . . . . . . . . . . . . . . . 7
Signature page . . . . . . . . . . . . . . . . . . 8
2
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
June 30,
1999 DECEMBER 31,
(UNAUDITED) 1998
ASSETS
Current Assets:
Cash and cash equivalents $ 994,241 $ 241,511
Accounts receivable - Trade 255,304 449,235
- Other 0 27,513
- Oil & Gas Sales 320,000 249,792
Notes Receivable 0 0
Inventory 0 9,499
Prepaid expenses and other assets 5,277 301
Total Current Assets 1,574,822 977,851
Property and equipment, at cost:
Oil and gas properties, successful efforts:
Unproved properties 718,207 701,742
Proved properties 14,760,729 14,809,082
Furniture, fixture and automobiles 153,280 149,260
15,632,216 15,660,084
Less accumulated depletion and depreciation (6,354,260) (6,156,221)
Net Property and Equipment 9,277,956 9,503,863
TOTAL ASSETS $10,852,778 $10,481,714
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 300,000 $ 300,000
Accounts Payable - Trade 176,141 128,957
Accounts Payable - Related Parties 13,729 0
Accounts Payable - Oil & Gas 375,281 326,383
Short Term Loans Payable 2,808 2,808
Other Current Liabilities 159,172 121,731
Advances From Drilling Partners 0 0
Total Current Liabilities 1,027,131 879,879
Other Long-term Liabilities $ 66,644 $ 66,644
Long-term debt due after one year $ 1,992,952 $ 2,147,060
Deferred income tax $ 1,075,000 $ 1,015,000
Stockholders' equity:
Common stock, $.01 par value;
Authorized 50,000,000 shares;
Issued 1,358,328 shares 13,517 13,517
Additional paid-in capital 1,040,157 1,040,157
Accumulated earnings 6,293,881 6,293,881
Current earnings 317,920 0
Treasury stock at cost, 789,020 shares at
June 30,1999 and 789,020 shares at
December 31,1998 (974,424) (974,424)
Total Stockholders' Equity 6,691,051 6,373,131
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,852,778 $10,481,714
See accompanying notes to financial statements.
3
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Operations
(UNAUDITED)
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
REVENUES:
Oil and gas sales $ 909,133 $ 866,325 $1,740,565 $1,834,613
Management fees 9,300 14,400 18,600 28,800
Administrative charges 80,506 78,043 160,461 148,521
998,939 958,768 1,919,626 2,011,934
OPERATING COSTS AND EXPENSES:
Lease operating expenses 243,520 247,067 533,219 512,762
Dry Hole & geological costs 75,022 8,937 75,272 52,575
Depletion, depreciation,
and amortization 278,512 242,938 534,960 615,797
General & administrative 214,393 206,332 377,705 375,405
811,447 705,274 1,521,156 1,556,539
Income From Operations $ 187,492 $ 253,494 $ 398,470 $ 455,395
OTHER INCOME (EXPENSES):
Dividends $ 0 $ 0 $ 0 $ 0
Interest income 16,611 22,929 24,723 42,949
Interest expense (46,060) (33,777) (92,794) (70,792)
Gain (loss) on sale of
oil & gas properties 47,521 0 47,521 0
18,072 (10,848) (20,550) (27,843)
Income before income taxes and
unusual item $ 205,564 $ 242,646 $ 377,920 $ 427,552
Unusual item 0 0 0 0
Income before income taxes $ 205,564 $ 242,646 $ 377,920 $ 427,552
Provision for income taxes:
Current 4,000 (2,000) 0 (10,000)
Deferred (20,000) (60,000) (60,000) (100,000)
NET INCOME $ 189,564 $ 180,646 $ 317,920 $ 317,552
EARNINGS PER COMMON SHARE:
Net income per common
share and common equivalent
PRIMARY $ .10 $ .09 $ .17 $ .16
FULLY DILUTED $ .10 $ .09 $ .17 $ .16
Weighted average number of common shares
and common share equivalent outstanding:
PRIMARY 1,921,717 1,944,888 1,921,717 1,944,888
FULLY DILUTED 1,921,717 1,944,888 1,921,717 1,944,888
See accompanying notes to financial statements
4
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Part I Financial Information
QUESTA OIL & GAS CO.
Consolidated Statement of Cash Flows
(Unaudited)
FOR THE SIX MONTHS ENDED
June 30, June 30,
1999 1998
Cash Flows From Operating Activities:
Operations:
Net Income (Loss) $ 317,920 $ 317,552
Plus Adjustments to Reconcile Net Income
(Loss) to Net Cash Flows From Operating Activities:
Gain (Loss) on Sale of Assets 47,521 0
Misc Income 0 31,536
Depreciation,Depletion and Amortization 534,960 615,797
Dry Hole and Exploration 75,272 52,575
Provision for Deferred Income Taxes 60,000 100,000
Changes In Operating Assets and Liabilities:
Accounts Receivable 151,236 (197,942)
Notes Receivable 0 (10,000)
Equipment Inventory 9,499 7,609
Other Current Assets (4,976) (6,612)
Accounts Payable and Accrued Expenses 147,252 (123,655)
Advances from Drilling Partners 0 (13,513)
Net Cash Provided By Operating Activities 1,338,684 773,347
Cash Flows From Investing Activities:
Purchase of Property and Equipment:
Oil and Gas Properties (427,826) (996,845)
Furniture, Fixtures & Automobiles (4,020) 0
Net Cash Used In Investing Activities (431,846) (996,845)
Cash Flows From Financing Activities:
Proceeds From Borrowing 0 0
Payment of Debt (154,108) (156,720)
Purchase of Treasury Stock 0 (57,981)
Net Cash (Used In) Provided By Financing Activities (154,108) (214,701)
Net Increase (Decrease) In Cash And Cash Equivalent 752,730 (438,199)
Cash and Cash Equivalents, Beginning of Year 241,511 490,388
Cash and Cash Equivalent, End of Period $ 994,241 $ 52,189
5
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Part I Financial Information
QUESTA OIL & GAS CO.
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Preparation and Presentation
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the financial
position of Questa Oil & Gas Co. as of June 30, 1999 and the results of their
operations for the three and six month periods ended June 30, 1999 and 1998 and
cash flows for the six months ended June 30, 1999 and 1998. Results for the
three and six months ended June 30, 1999 are not necessarily indicative of the
results to be realized during the full year.The accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 10-Q
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These stateme
nts should be read in conjunction with the Questa Oil & Gas Co. financial stat
ements and notes thereto as of December 31, 1998, which are included in the Comp
any's annual report and Form 10-K.
(2) Note Payable
The Company has a line of credit and a term loan with a local bank. The
aggregate borrowing of the loans are $3,500,000. The term loan was $2,500,000
with quarterly installments of $75,000 plus accrued interest with the final
payment due June 30, 2001. The line of credit is $1,000,000 with interest of one
quarter of one percent on the amount not used. For the first six months of 1999
the interest rate on both the line and the term loan was at New York prime,7.75%
As of June 30, 1999, the outstanding principal amount of the term loan was
$2,275,000 and zero on the line of credit. Loans are secured by certain of the
Company's interests in oil and gas properties.The Company is not required by the
loan agreement to maintain a certain balance in our demand accounts with the
bank. The Company also has two automobile loans with the bank. The loans are for
60 months, 7.5% and 7.75% rates, with final payment due June, 2002.
QUESTA OIL & GAS CO.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
June 30, 1999
Liquidity and Capital Resources
At June 30, 1999, the Company had current assets of $1,575,000 compared
to current liabilities of approximately $1,027,000 resulting in positive working
capital of $548,000. As of June 30, 1999 the total outstanding bank loan balance
was $2,275,000 compared to $2,425,000 as of December 31, 1998.The Company is in
a positive position to participate in new acquisitions and offset drilling
through its current line of credit and cash flows from operations. Working capi
tal will continue to fluctuate during the year as the Company wells are drilled,
completed and connected to a sales outlet.
Average oil and natural gas prices received during the first six months
of 1999 were lower than during the same period in 1998. The average oil price
received by the Company during the first six months of 1999 was $12.00 per BBL
which was a $1.72 per barrel decrease when compared to 1998. Average natural gas
prices decreased to $1.82 per MCF, a $.60 per MCF drop when compared to 1998.Oil
prices within the industry remain largely dependent upon world markets for crude
oil. Prices for natural gas are influenced by weather conditions and supply
6
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imbalances. Natural gas comprises approximately 83 percent of the Company's
revenues. A large drop in the natural gas prices will have a significant effect
on the earning potential of the Company. Such decreases, if sustained, will
adversely effect the Company's cash flow in future quarters.
During the first six months of 1999 the Company participated in the
drilling of six wells; two dry holes, three producing gas wells and one work in
process. The Company's working interest in the six wells range from .5% to 23%
with the Company acting as operator on the work in process well and an outside
joint owner in the other five. Three of the new wells drilled came on line in
June, 1999 and will provide additional net cash flow.
Expenditures for drilling during the first half of 1999 were $450,000,
$45,000 written off as dry hole expense. Additional drilling is projected for
the last half of 1999. The Company's exploration budget for 1999 was $1,500,000
with an additional $500,000 slated for acquisitions. The Company feels the
continued upswing in oil and gas prices will open new prospects for drilling.
The Company currently anticipates that its information system and
equipment will be Year 2000 compliant by the end of the second quarter of 1999
and that the associated costs will not have a material adverse effect on the
Company's financial condition. The Company cannot currently determine the impact
third parties will have on the Company's Year 2000 exposure, but intends to
continue to evaluate its Year 2000 compliance.
In the fourth quarter of 1998, the Company's Board of Directors
authorized the Company to purchase up to 30,000 shares of its outstanding common
stock on the open market. The Company will periodically make these purchases,
based upon terms determined by management. If the maximum number of shares are
purchased, it will represent four (4) percent of the public float of Questa's
common stock.
Results of Operations
1998 to 1999
Oil and gas sales during the first half of 1999 decreased from
$1,835,000 to $1,741,000 over the comparable period last year as the result of
lower oil and gas prices (oil prices have dropped 12.5% and gas prices dropped
25%).
The lease operating expenses for the first half increased from $513,000
to $533,000 over the same period last year. This increase is the result of the
increase in the number of producing wells and workovers of existing wells. Dry
hole expense increased $23,000 in 1999. Decreases in depletion, depreciation,
and amortization from $616,000 to $535,000 are due to the drop in oil and gas
prices. Changes in the Company's general and administrative expenses was
insignificant.
Interest income decreased due to smaller cash balances in the bank
accounts. Interest expenses increased due to the renegotiated term loan in
December, 1998. Questa sold its interest in a producing property resulting in a
gain of $47,000 in June, 1999
Net income for the first six month period of 1999 remained comparable
with 1998 due to lower projected income tax provisions and the gain on the
producing property sale. First six months net income for 1999 was $317,920 and
$317,552 for 1998.
Part II Other Information
Item 1 - Not Applicable.
Item 2 - Not Applicable.
7
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Items 3 through 5 - Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUESTA OIL & GAS CO.
Date August 12, 1999 /s/ Warren L. Meeks
Warren L. Meeks
Chief Executive Officer
Date August 12, 1999 /s/ Donald A. Towner
Donald A. Towner
Vice President - Finance
8
<PAGE>
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